Halfords is due for a service

Halfords runs a network of 451 retail stores across the UK and Ireland, through which it sells car parts and accessories as well as bicycles. It also operates 317 'autocentre' garages and 26 performance cycle stores under brands such as Cycle Republic and Tredz. Last year 86 per cent of group revenues came from retail, with the rest from autocentres. Meanwhile a fifth of total sales were made online and almost a quarter were classed as service-related.

The profit warning was the second of the year. In January management cut its guidance for the 12 months to end-March 2019 to £58m-£62m, having previously expected profits similar to 2018’s £71.6m. As with the latest warning, management blamed consumer confidence and the weather.

The group is working towards four medium-term financial targets, but progress has been mixed. It has beaten its target of keeping net debt equal to one year’s cash profits. However, net debt of £82m is less reassuring when seen alongside the company's £450m estimate of its lease liabilities, chiefly related to its store estate. 

Management is also aiming to grow sales ahead of the wider market, which according to group forecasts means annual sales growth of 2 per cent for car parts and accessories, servicing and aftercare, and cycling, and 1.5 per cent for performance cycling. However, the group saw overall like-for-like sales growth of only 1.1 per cent in the last financial year, with retail up by just 0.8 per cent.

This worsened in the first 20 weeks of the current financial year. Like-for-likes for motor retail slipped 5.9 per cent, while cycling fell 1.1 per cent in spite of efforts to refresh the cycling space in 220 of the group’s stores. Growth in autocentres, which was 2.2 per cent in the 2019 financial year, fell to 1.1 per cent.

Another target is to grow the ordinary dividend every year. Halfords offers an appealing historic dividend yield, but with dividend cover of just 1.1 times last year substantial cuts are forecast.